Japan’s Third Employee Category

In “The Near Future of Employment in Japan” published in the March 2012 issue of Social Science Japan (Newsletter of University of Tokyo’s Institute of Social Science; no. 46), professor of Labor Economics, Genda Yuji aims to provide a “blueprint” for an adjustment to Japan’s employment system that can effectively face future crises, taking into account lessons learned from the latest economic downturn. As far as blueprints go, this one is rather pale of shade and sparse of detail, but this may be due to the stage at which this “Project for the Creation of an Employment System that Enables Lifelong Growth for All People” initiative is currently.

Nevertheless, Prof. Genda makes a number of informative observations. The major is what he calls a “market trend” of “quasi-regular employees” emerging to fill the gaps between the regular employees (I’m assuming he is thinking of 正社員) and the dispatch/freeter class. Critics have come down too harshly on the post-Lehman expansion of hiring of part-timers/contract workers in place of the higher paid—and more difficult to fire—regular employees (temp. workers were laid off in waves during the “Lehman shock”). This is not an unproblematic trend, Genda concedes, but there are two problems with blanket criticism: first, it does not actually correlate to high unemployment, and second, these critics lump all non-regular employees together, failing to notice the emergence of the “quasi-regular employees.”

First of all, we can now see with a little more clarity the critical year 2009, and what become clear is that it was characterized by the quick change in the unemployment rate, than the rate itself. Contrary to the more alarmist voices of the time, Genda argues, the data reveal that the so-called once-in-a-century recession of 2009 witnessed 5.1% unemployment; lower than the record-high 5.4% of 2002 (incidentally the US unemployment rate was almost double, hitting 10% in Oct. 2009). But before our observing distance gets to long and the potential lessons of the crisis get forgotten, Genda suggests that Japan’s employment system be adjusted to respond not only to the recent difficulty, but also to future crises, hence the blueprint.

Japan’s past employment-system changes have occurred similarly in response to major events every decade or so (here he is following Tōdai’s Professor Keisuke Nakamura). The 1960s brought about the merit-based wage system with the liberalization of capital and trade flows, the 1970s professional-skill based pay grades followed the oil-shock, and the 1990s performance-based pay system popped up as the bubble burst. What will be the system change that follows the crisis of the 2000s?

Genda hopes the change will be one that supports fixed-term workers, rather than inhibit them with well-meaning restrictions. Currently 1 of 3 workers is non-regular, and is staying longer with one employer than in previous years. Therefore, though their status is more precarious than the full employee, non-regular employees as a whole are not being tossed from the company buses at every bump in the economic road. The increased periods of employment are becoming so widespread, in fact, that Genda sees the emergence of a third class of worker, the “quasi-regular employee.” Moreover, 400,000 of non-regular workers become full-employees every year, and companies are more likely to hire from among temps that have spend a long time with the company.

This much is observable: in times of economic downturn companies are less likely to increase hiring of regular employees, opting instead for temporary workers. However, such non-regular workers are showing ever-increasing job continuity, and many move on the regular ranks after some time with the company. Genda, then, argues more or less for nature taking its course. Non-regular workers do need better protection from wrongful termination, but the government already has some consultation services and some legal framework in place. However, very few employees know of these services, so those need to be better advertised, and the legal framework will be strengthened and expanded with each case brought before the courts. What does need to be guaranteed, from above if you will, are guidelines for financial compensation to reduce the immediate difficulties following a termination. In other words, Genda sees temporary employment as not only on an unavoidable increase, but also as a path for many workers up the ladder to regular employment. They just need to be given a chance to get there (along with a safety net to offset the likely falls).

In a kind of companion piece (“Creating an Employment System that Sustains Lifelong Growth for All People: How to solve the problem of irregular employment”), Tsuru Kotaro, senior fellow and program director at the Research Institute of Economy, Trade and Industry, echoes Prof. Genda’s sentiment. Mr Tsuru advocates an adjustment in qualitative rather than quantitative standards for Japan’s fixed-term employees. In other words, limits on fixed-term contract renewals (along the lines of continental Europe’s regulations) ought not be imposed—this style of employment is after all the source of jobs for many people—but qualitative regulations aimed at improving treatment are a must. He recommends that employers be required to present a variety of employment contracts that specify eligibility for—and if applicable the maximum numbers of—renewals, at the time of hire to mitigate some elements of job insecurity. He also supports the temp-to-permanent system of employment that would, in effect, empower Prof. Genda’s “quasi-regular employee” (Tsuru likewise advocates for severance pay packages).

The takeaway, then, is that the fixed-term employee system is not going anywhere in the near future, and restricting fixed-term hires would result in a misguided policy. The non-regular employees, rather, should be supported with an adjustment to the system of clearer contract terms, more opportunities for temp-to-permanent positions, and severance packages. In a sense Genda and Tsuru present an indirect path to full employment. The aim of this proposal appears to be support of temp workers qua temp workers, at least until the good ones get hired on as full employees.